The Carlson Department Store suffered heavy damage when a hurricane struck on Au
ID: 364369 • Letter: T
Question
The Carlson Department Store suffered heavy damage when a hurricane struck on August 31. The store was closed for four months (September through December), and Carlson is now involved in a dispute with its insurance company about the amount of lost sales during the time the store was closed. Two key issues must be resolved: (1) the amount of sales Carlson would have made if the hurricane had not struck and (2) whether Carlson is entitled to any compensation for excess sales due to increased business activity after the storm. More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses.
Table 6.18 gives Carlson's sales data for the 48 months preceding the storm. Table 6.19 reports total sales for the 48 months preceding the storm for all department stores in the county, as well as the total sales in the county for the four months the Carlson Department Store was closed. Carlson's managers asked you to analyze these data and develop estimates of the lost sales at the Carlson Department Store for the months of September through December. They also asked you to determine whether a case can be made for excess storm-related sales during the same period. If such a case can be made, Carlson is entitled to compensation for excess sales it would have earned in addition to ordinary sales.
TABLE 6.18 SALES FOR CARLSON DEPARTMENT STORE ($ MILLIONS)
Month
Year 1
Year 2
Year 3
Year 4
Year 5
January
1.45
2.31
2.31
2.56
February
1.80
1.89
1.99
2.28
March
2.03
2.02
2.42
2.69
April
1.99
2.23
2.45
2.48
May
2.32
2.39
2.57
2.73
June
2.20
2.14
2.42
2.37
July
2.13
2.27
2.40
2.31
August
2.43
2.21
2.50
2.23
September
1.71
1.90
1.89
2.09
October
1.90
2.13
2.29
2.54
November
2.74
2.56
2.83
2.97
December
4.20
4.16
4.04
4.35
TABLE 6.19 DEPARTMENT STORE SALES FOR THE COUNTY ($ MILLIONS)
Month
Year 1
Year 2
Year 3
Year 4
Year 5
January
46.80
46.80
43.80
48.00
February
48.00
48.60
45.60
51.60
March
60.00
59.40
57.60
57.60
April
57.60
58.20
53.40
58.20
May
61.80
60.60
56.40
60.00
June
58.20
55.20
52.80
57.00
July
56.40
51.00
54.00
57.60
August
63.00
58.80
60.60
61.80
September
55.80
57.60
49.80
47.40
69.00
October
56.40
53.40
54.60
54.60
75.00
November
71.40
71.40
65.40
67.80
85.20
December
117.60
114.00
102.00
100.20
121.80
Prepare a report for the managers of the Carlson Department Store that summarizes your findings, forecasts, and recommendations. Include the following:
1. An estimate of sales for Carlson Department Store had there been no hurricane
2. An estimate of countywide department store sales had there been no hurricane
3. An estimate of lost sales for the Carlson Department Store for September through December
In addition, use the countywide actual department stores sales for September through December and the estimate in part (2) to make a case for or against excess storm-related sales.
I’m in need of help with question 3 (the bold question). If you could show me the steps in detail I would be most appreciative.
TABLE 6.18 SALES FOR CARLSON DEPARTMENT STORE ($ MILLIONS)
Month
Year 1
Year 2
Year 3
Year 4
Year 5
January
1.45
2.31
2.31
2.56
February
1.80
1.89
1.99
2.28
March
2.03
2.02
2.42
2.69
April
1.99
2.23
2.45
2.48
May
2.32
2.39
2.57
2.73
June
2.20
2.14
2.42
2.37
July
2.13
2.27
2.40
2.31
August
2.43
2.21
2.50
2.23
September
1.71
1.90
1.89
2.09
October
1.90
2.13
2.29
2.54
November
2.74
2.56
2.83
2.97
December
4.20
4.16
4.04
4.35
Explanation / Answer
By comparing the forecast of county-wide department store sales with actual sales, one can determine whether or not there are excess storm-related sales. We have computed a "lift factor" as the ratio of actual sales to forecast sales as a measure of the magnitude of excess sales.
Forecast Sales ($ million)
Actual Sales ($ million)
Lift Factor
50.55
69.0
1.365
53.20
75.0
1.410
66.78
85.2
1.276
103.11
121.8
1.181
273.64
351.0
1.283
From the analysis a strong case can be made for excess storm related sales. For each month, actual sales exceed the forecast of what sales would have been without the hurricane. For the 4-month total, actual sales exceeded the forecast by 28.3%.
The explanation for the increase is that people had to replace real and personal property damaged by the storm. In addition, the additional construction workers, the disaster relief teams, and so on, created additional commercial activity in the area.
Forecast Sales ($ million)
Actual Sales ($ million)
Lift Factor
50.55
69.0
1.365
53.20
75.0
1.410
66.78
85.2
1.276
103.11
121.8
1.181
273.64
351.0
1.283
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